The Administration strongly opposes House passage of H.R. 1714, in the
version considered by the House on November 1, 1999. The Secretaries of
Commerce, Housing and Urban Development and of the Treasury will recommend
that the President veto H.R. 1714 in its present form for the reasons set
forth in the Statement of Administration Policy dated November 1, 1999
(copy enclosed).

The Rules Committee has made in order consideration of en bloc amendments
to be offered by Reps. Inslee, Eshoo, and others, that purport to address
some of the concerns identified by the Administration, as well as
consideration of an amendment in the nature of a substitute to be offered
by Reps. Gephardt, Dingell, LaFalce and Conyers. The Administration
believes that the en bloc amendments fall short of eliminating the serious
defects in H.R. 1714, and the Secretaries of Commerce, Housing and Urban
Development and of the Treasury will recommend that the President veto H.R.
1714, with the en bloc amendments. For the reasons explained below and
in the enclosed Statement of Administration Policy, the Administration
would support adoption of the Gephardt-Dingell-LaFalce-Conyers substitute
(previously introduced as H.R. 3220).

The legislation that was initially considered by the House Commerce
Committee was designed to ensure the legal validity of contracts in
electronic form that are signed with electronic signatures (the States
currently are considering the Uniform Electronic Transactions Act, which
updates state contract law to recognize electronic contracts). These
provisions are not controversial. They are embodied in the
Abraham-Wyden-Leahy amendment to S.761 (which may be considered by the
Senate this week) and in the Gephardt-Dingell-LaFalce-Conyers substitute.

The bill reported by the House Commerce Committee - H.R. 1714 - goes well
beyond this limited but critical objective, and adopts provisions that
broadly authorize the substitution of "electronic records" that do not
provide equivalent protections as those for the written documents mandated
by statutes and regulations requiring consumer notifications and
disclosures. The bill also would allow businesses subject to statutory and
regulatory record retention requirements (insurance companies, for example)
to retain electronic records while not providing equivalent access to the
written records required by those statutes and regulations. The
Administration believes strongly that these provisions will leave on-line
consumers with fewer consumer protections than they have in other forms of
commerce.

For example, the bill ostensibly requires consumers to "opt-in" to
electronic notices, but the consumer need not be told of the right to
obtain information in written form or which specific records would be
affected. Neither the States nor federal regulators will have any ability
to eliminate abuses that may occur. And even with respect to notices
concerning health and safety, the States (but not the federal government)
can reinstate regulatory requirements, but the bill creates a gap in
protection for the years that will elapse before reenactment occurs.
Finally, the bill deprives the States of all authority to oversee retention
of electronic records - businesses may decide for themselves how to keep
information electronically, even if they do so in a way that makes it
impossible for state regulators to do their jobs.

The en bloc amendments do not come close to addressing the Administration's
concerns. Although it improves the "opt-in" standard by requiring that the
consumer's consent be "conspicuous and visually separate" and that the
consumer be informed of the hardware and software needed to access
electronic records, it still does not require that the consumer be told of
the right to receive written notice or of the particular notices and
disclosures that would be affected. Moreover, the amendment does nothing
to restore regulators' authority to prevent abuses by overreaching
corporations. Rather, it weakens the already diminished ability of the
States to protect health and safety. Under the version considered November
1 under suspension of the rules, and here again today, States could reenact
requirements of written notices "necessary for the protection of the safety
or health of an individual consumer"; under the en bloc amendments the
States' power is restored only if notices are necessary for the protection
of the "public health or safety of consumers," a standard that is plainly
less protective of individual consumers. Finally, the en bloc amendments
would subject consumers to the bill's electronic delivery provisions
without adequate protections for at least 18 months while a study of the
impact on consumers is completed.

The Gephardt-Dingell-LaFalce-Conyers substitute, by contrast, accomplishes
the highly laudable goal of ensuring that signatures and contracts will not
be denied legal effect solely because they are electronic in form. The
Administration supports this substitute because it preserves long standing
government authority to establish safeguards, such as consumer protection
laws; covers only commercial transactions between private parties that
affect interstate commerce; does not affect Federal laws or regulations;
and sunsets completely when a state enacts the Uniform Electronic
Transactions Act. The Senate may consider this week a proposal that is
virtually identical to the Gephardt-Dingell-LaFalce-Conyers substitute.
Hence, the important objectives accomplished by that substitute could be
codified in legislation that is enrolled and presented to the President for
signature virtually immediately.

Electronic commerce will play an important role in expanding our economy at
the same time that it provides new benefits to consumers. The
Administration believes that reliable electronic signature technology, used
properly, is necessary to reap the full benefits of electronic commerce for
consumers. The States and the Federal government can assist the growth of
electronic commerce by ensuring a predicable legal environment with regard
to the validity of electronic signatures and contracts.

In certain circumstances it will be appropriate for the law to allow
ongoing communication between parties to be conducted in electronic form.
Statutory changes to accomplish this task must be done with great care,
however, to avoid placing vulnerable consumers at risk. The Federal
Reserve is currently engaged in a public rulemaking process to evaluate
various consumer protection regulations and determine the appropriateness
of electronic disclosures and notices on a statute-by-statute basis. The
Administration supports this process, which should not simply be preempted
by H.R. 1714 or similar legislation.

The Administration recognizes that a number of Representatives also wish
to address the issues of electronic records and electronic record retention
and maintenance requirements that would not be addressed by the
Gephardt-Dingell-LaFalce-Conyers substitute. The Administration is
committed to working constructively with those Representatives to discuss
their concerns and develop appropriate legislation that avoids the problems
identified herein.